Mortgage rates stall and home prices rise

Home prices are on the rise, but potential homebuyers will still find mortgage rates near the bottom if they are applying for a mortgage this week.

30 year fixed rate mortgage -- 3 month trend

The benchmark 30-year fixed-rate mortgage fell to 3.8 percent from 3.81 percent last week, according to the Bankrate.com national survey of large lenders. One year ago, that rate was 4.5 percent. Four weeks ago, it was 3.99 percent. The mortgages in this week's survey had an average total of 0.29 discount and origination points. Over the past 52 weeks, the 30-year fixed has averaged 4.24 percent. This week's rate is 0.44 percentage points lower than that 52-week average. Excluding the week before last, the last time the 30-year fixed was lower was the week of May 22, 2013, when it was 3.74 percent.

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Mortgage rates and home prices

Rates have hovered near these lows since mid-December, when the 30-year fixed fell and then stayed below 4 percent.

Home prices haven't followed the same trend. U.S. home prices rose 4.7 percent in November compared with the previous year, according to the S&P/Case-Shiller Home Price Index report released this week. This is far from the double-digit increases the market experienced in 2013, but the numbers point to a healthy market with stable price appreciation.

You can catch the second boat

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For those who missed the boat on buying a home when prices hit rock bottom, remember that today's low rates may help offset some of the higher prices that buyers face.

"If you can afford it and can handle it, this is still a great time to buy, especially with lower (mortgage insurance premiums). Owning a home is probably cheaper than it is to rent in most places," says Michael Becker, branch manager for Sierra Pacific Mortgage in White Marsh, Maryland. He is referring to a recent change by the Federal Housing Administration that reduces the cost of annual mortgage insurance that borrowers with FHA loans have to pay.

How much longer do buyers have?

Rates have stayed low for much longer than many in the mortgage industry had expected, but don't think this trend will last forever.

It's unlikely that rates will shoot up anytime soon, Becker says. But rates might start rising by midyear if the Fed raises the federal funds rate.

"Most people expect the Fed to raise rates by midyear," Newport says. "Mortgage rates are bottoming out right now."

The Fed said it's committed to keeping short-term rates low at least until midyear, according to the Federal Open Market Committee statement released Jan. 28. The increase will likely be gradual, but buyers who are sitting on the sidelines may be in for a surprise when rates rise.

"Lock your rate now, especially if you are a first-time homebuyer," Becker says.

Polyana da Costa covers mortgages and housing topics for Bankrate.com. She has been interviewed as a real estate expert by various news outlets, including ABC News Radio, CBS Radio and local NBC affiliates. She also has been cited by Forbes.com and quoted by U.S. News & World Report, the Fiscal Times and TheStreet.com among others. Connect with Polyana da Costa on Google+.

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